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Finance week 4 quiz. ____________________________________________

 BUS 401 WeeK 4 Quizz

 1.     Question     


Flotation costs

                include the fees paid to the investment bankers, lawyers, and accountants involved in selling a new security issue.

              encourage firms to pay large dividends.

              are encountered whenever a firm fails to pay a dividend.

              are incurred when investors fail to cash their dividend check.


  2.     Question     


Based on the data contained in Table A, what is the break-even point in units produced and sold?






Average selling price per unit $18.00

Variable cost per unit $13.00

Units sold 400,000

Fixed costs $650,000

Interest expense $ 50,000







 3.     Question     


The break-even model enables the manager of the firm to

               calculate the minimum price of common stock for certain situations.

              set appropriate equilibrium thresholds.

               determine the quantity of output that must be sold to cover all operating costs.

              determine the optimal amount of debt financing to use.



  4.     Question     


Moline Manufacturing Corporation reported the following items Sales = $6,000,000; Variable Costs of Production = $1,500,000; Variable Selling and Administrative Expenses = $550,000; Fixed Costs = $1,350,000; EBIT = $2,600,000; and the Marginal Tax Rate =35%. Molines break-even point in sales dollars is








 5.     Question     


A firms optimal capital structure occurs where?

               EPS are maximized, and WACC is minimized.

              Stock price is maximized, and EPS are maximized.

              Stock price is maximized, and WACC is maximized.

               WACC is minimized, and stock price is maximized.




 6.     Question     


Financial leverage is distinct from operating leverage since it accounts for

                use of debt and preferred stock.

              variability in fixed operating costs.

              variability in sales.

              changes in EBIT.




 7.     Question     


Bobs Baked Goods Company reported the following income statement for 2009

Sales $2,500,000

Variable Costs 900,000

Fixed Operating Costs 700,000

EBIT 900,000

Interest Expense 200,000

EBT 700,000

Taxes (30%) 210,000

Net Income $490,000

Earnings Per Share $4.90



If Bobs sales next year increase by 20%, Bobs EBIT will increase

               20%, showing no operating leverage.

              20%, showing no financial leverage.

               over 35%, due to operating leverage.

              over 35%, due to operating leverage and financial leverage.




 8.     Question     


Amish Enterprises makes wooden play sets. The company pays annual rent of $400,000 per year and pays administrative salaries totaling $150,000 per year. Each play set requires $400 of wood, ten hours of


labor at $70 per hour, and variable overhead costs of $100. Fixed advertising expenses equal $100,000 per year. Each play set sells for $3,200. What is Amish Enterprises break-even output level?

               340 play sets

               325 play sets

               297 play sets

              258 play sets




 9.     Question     


A firm that uses large amounts of debt financing in an industry characterized by a high degree of business risk would have ________ earnings per share fluctuations resulting from changes in levels of sales.








 10.     Question     


The final approval of a dividend payment comes from

               the controller.

              the president of the company.

               the board of directors.

              It is a joint decision requiring approval from all of the above.

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